The Big Question

As I write this column from the Wyoming State Fair, the weather hasn’t been too bad, and we usually have a breeze to help out in the afternoon. Those from the ag community have a pretty good smile on their faces, and the State Fair looks good again this year. A lot of work goes into it, between the staff and the Advisory Board. They react very quickly to any issues that may flare up during the events of the Fair.

Fuel costs are going down, and as with all commodities, there is fluctuation or change in the prices. For some, it is cheaper, and others it will cost. We just hope it doesn’t cost too much. In the energy business this time, some may be hurt severely if they made the wrong decisions with finances. Some, like coal, are really getting beat up and unnecessarily so.

A few weeks ago I read a news article from England about how Saudi Arabia could be in trouble with low oil prices, but it was their own doing. As you remember, the Saudis really gambled last November when they stopped supporting oil prices and opted to flood the market and drive out competitors, mainly the U.S. They called the U.S. shale oil producers “rookies.” They earmarked billions of dollars to pay the bills at home while they flooded the market at lower prices.

Now, we have to realize that the Saudis rely on oil for around 90 percent of the country’s budget revenues. They really have no other big industries. Their people pay no tax on income, interest or stock dividends. They subsidize their gasoline to where it only costs 20 cents a liter at the pump. It costs a lot to keep their people happy and not revolt against the King. Their electricity costs them 1.3 cents a kilowatt hour.

Their main enemy is Iran, as they are engaged in a costly battle with their enemy in Yemen, and they are engaged in a massive military build-up that will put Saudi Arabia in fifth place in the world defense ranking. The royal family is really nervous over Iran. The new ruler, King Salman, recently gave away $32 billion in a coronation bonus for all workers and pensioners. The royal family leads the Sunni cause against a resurgent Iran, battling for dominance in a bitter struggle between Sunni and Shia across the Middle East. The article also said the Saudis have only one thing on their minds – and that is Iran.

Now, Saudis have placed the U.S. oil companies in a weak spot worldwide. These American companies have postponed many big projects around the world, placing thousands of employees without jobs. And the big question is, will the recent treaty America reached with Iran help or hurt? It will give Iran the opportunity to sell 1,000 barrels of oil a day, get millions of dollars that have been tied up in U.S. banks and other favorable terms.

The bad part is that all of these issues will really be out of the control of the U.S., and it will cost us. The big question is how much and for how long?